Why Amazon Acquired ComiXology

While Amazon's acquisition of ComiXology might not have caused the same sort of stir as talk of drone deliveries and grocery sales expansions, the purchase will give the company access to a growing industry moving forward.

Apr 23, 2014 at 8:20AM

Earlier this month, Amazon.com (NASDAQ:AMZN) announced that it had acquired the Seattle-based digital comic retailer ComiXology. While this news may have been overlooked as minor by some, this acquisition could mean big things for Amazon moving forward. Not only does ComiXology bring with it a lot of connections in the comic industry, but the potential synergies between it and other Amazon platforms like the Kindle could be significant.

Before we get into all of that, though, let's take a moment to look at ComiXology and see what makes it such a powerhouse in the digital comics world.

A major player
Comic books are a big market, and this has only been helped by the success of comic-inspired blockbusters such as The Avengers, Captain America: The Winter Soldier, and The Dark Knight Rises. When Walt Disney (NYSE:DIS) reported its full-year financials for 2013, for example, it attributed the growth in its Consumer Products segment specifically to Marvel's strength. Licensing of comic book characters for toys and other merchandise is a significant source of income, both for the companies licensing the characters and merchandisers like Hasbro (NASDAQ:HAS), which produces toys based on both Marvel and DC characters.

With ebooks and digital media seeing increasing market share, both Marvel and Time Warner's (NYSE:TWX) DC Comics (as well as a host of smaller publishers) needed to find a way to make that transition or be left behind by the competition. To do so, they turned to ComiXology. The company's platform hosts comics from both major and minor publishers, is the exclusive digital platform for The Walking Dead comics, and crossed the 200 million download mark late last year (which is impressive, since it had only hit 100 million the year before.)

ComiXology now hosts over 40,000 comics in 50 genres and has clients for a wide range of devices including the iPhone and iPad, Android devices, and Windows 8 devices. The company also offers a web-based platform that users can access over the Internet, as well as related features such as "Pull List," which helps readers find local comic book stores to buy or preorder physical comics.

Enter Amazon
Originally, Amazon was seen as more of a threat to ComiXology than a potential boon. Amazon launched its Jet City Comics imprint as an extension of Amazon Publishing last year, putting its offerings in direct competition with ComiXology since the smaller company also created original comics. This was worrisome to some ComiXology fans, -- a major push by Amazon could provide significant competition to ComiXology's platform and potentially even draw away support from comic publishers that wished to align with the larger Amazon platform.

Jet City Comics didn't make much of a splash in the larger comics world, however, despite the appeal of comics based on the works of writers such as George R.R. Martin, Hugh Howey, and the collaborators on "The Foreworld Saga." Martin's Meathouse Man, for example, is currently no. 24 in the niche genre of zombie graphic novels, while all of the top 18 entries in the category belong to The Walking Dead (and two of the other entries above Meathouse Man belong to Marvel Comics). It's ranked significantly lower in both the "horror" and "science fiction" niches where it's also listed, and isn't even in the top 70,000 sales in the Kindle store.

Follow the money
It's easy to see how the ComiXology purchase is going to benefit Amazon. Access to the ComiXology platform not only provides the company with additional revenues from the growing digital comics market and to the comic series that had the highest-selling single issue in 2013 (The Walking Dead, which also had five of the top 10 best-selling graphic novels for the year). It could also provide synergy with Jet City Comics and the Kindle, giving both access to the ComiXology publishing platform. Amazon could also use its Kindle platform to further refine the ComiXology's "Comics" app, which is already available for the Kindle Fire but might enjoy more direct integration in the future.

Digital comics sales have been growing wildly since 2009, with a 10 times increase between 2009 and 2010 followed by a more than three times increase between 2010 and 2011. Sales tripled again between 2011 and 2012, and ICv2 estimates after the third quarter placed 2013 sales at a 25% increase on top of that. While the growth rate is slowing year to year, this simply shows that the industry is maturing and should continue to be a major segment of the comics industry moving forward.

Amazon.com now has a spot at the forefront of this growth, putting the company exactly where it wants to be.

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John Casteele has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Hasbro, and Walt Disney. The Motley Fool owns shares of Amazon.com, Hasbro, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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